Bunge Inventory Correction: A Shopping for Alternative (NYSE:BG)


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Fuel and food prices have exploded higher, which is bad news for consumers. The companies that feed the world are experiencing rising input prices, but profits are rising.

The ABCD companies dominate the world’s agricultural markets. They produce, process, and distribute many ingredients that feed the world each day. The growing biofuel business is another integral part of their businesses. The A member is Archer-Daniels-Midland (ADM), and the C company is Cargill. While ADM is publicly traded, Cargill is a private firm, as is Louis Dreyfus, the D member of the foursome. Bunge Limited (NYSE:BG) is the B member that trades on the stock market. Bunge is an international company with significant interests in Brazil, where the climate and geography support many agricultural products. These days, BG not only feeds but fuels the world with its agricultural businesses.

BG shares reached a multi-year high in April, but they have pulled back with the stock market. The recent dip in BG shares could be the perfect buying opportunity as the agricultural bull market will likely continue over the coming years.

A Massive Rally From The March 2020 Low

As the early 2020 global pandemic gripped markets across all asset classes, BG shares fell to $29, a price not seen in a dozen years.

BG stock - Bullish trend since the early 2020 low

Chart of BG Shares (Bar Chart)

The chart highlights the March 2020 low that was only $1.40 above the low during the 2008 global financial crisis. Since then, BG took off on the upside, reaching $128.40 per share on April 21, nearly four and one-half times the March 2020 bottom.

BG Corrects From The April High

Bull markets rarely move in straight lines, and BG shares turned lower from the April 21 high, correcting over the past weeks.

Bunge stock bullish trend in 2022

Chart of BG Shares (Barchart)

The short-term chart shows the decline from the late April peak to a low of $106.58 on May 12. At the $109.38 level on May 20, BG is closer to the recent low than the April 21 high. The stock has made lower highs and lower lows since peaking, but at $109.38, the stock remains 17.2% higher since the December 31, 2021, closing price of $93.36.

The Stock Market Correction Weighs On BG Shares

Increasing US interest rates and a stronger US dollar has weighed on the US stock market in 2022.

BG stock Bearish trend in 2022

Chart of the S&P 500 Index (bar chart)

The S&P 500 Index, the most diversified stock market index, declined by 18.1% in 2022, falling from 4,766.18 on December 31, 2021, to 3,901.36 on May 20, 2022.

While the stock market decline has weighed on BG shares since the April 21 high, commodity prices and the demand for BG products have caused earnings to soar.

Since the end of 2021, agricultural commodity prices have soared. As of the close of business on May 20:

  • Nearby CBOT soybean prices at $17.0525 per bushel were 25.8% higher in 2022.
  • Nearby CBOT corn prices at $7.7875 per bushel were 31.2% higher in 2022.
  • Nearby CBOT wheat prices at $11.6875 per bushel were 52.9% higher in 2022.
  • Nearby ICE sugar prices at 19.95 cents per pound were 8.5% higher in 2022.
  • Nearby Chicago ethanol swap prices at $2.7600 per gallon wholesale were 27.6% higher than at the end of 2021.

Most of these markets have contributed to rising earnings at BG and the other leading agricultural companies in 2022.

A Respectable Dividend And Booming Market For BG’s Products

The trend in BG’s earnings and revenues has been impressive.

Bunge - Bullish trend in earnings

BG Earnings over the past four quarters (Yahoo Finance)

BG has consistently beat the consensus EPS forecasts over the past four quarters. In Q1 2022, the market expected $2.86 per share, and the company blew the cover off the ball, reporting EPS at $4.07. The current Q2 2022 estimates are at the $3.19 per share level.

Bunge stock - Positive trend in revenues and earnings

BG revenues and earnings since 2018 (Yahoo Finance)

The annual chart shows increasing revenues and earnings, reflecting the bull markets in agricultural products.

At $109.38 per share, BG pays shareholders a $2.50 or 2.29% dividend. The company recently boosted its annualized dividend from $2.10 to $2.50.

Bullish forecasts for BG shares

Analyst Upgrade and Downgrades- BG Shares (Yahoo Finance)

Recent upgrades and downgrades favor the upside for BG shares, which have outperformed the stock market in 2022.

Buying BG On A Scale-Down Basis As The Fundamentals Remain Strong

Food and energy companies are the stock market leaders in 2022, and that trend looks likely to continue. Rising inflation, the war in Ukraine, and other factors have pushed prices of the commodities that feed and power the world higher. BG is a leading agricultural company, and its ethanol business makes it a leader in biofuels.

The recent decline from the high could be an excellent buying opportunity.

Upside price targets for BG shares

Long-term Chart of BG Shares (Barchart)

BG shares traded to an all-time high of $135 in 2008. I expect the stock to challenge and eclipse that level, given the compelling fundamentals for the agricultural markets and the trend in earnings. The juicy $2.50 dividend pays shareholders while they wait for capital appreciation.

BG offers an oasis of value in a very volatile stock market that is correcting. The high-flying tech sector is suffering a substantial decline, but the companies that feed and fuel the world are likely to remain the leaders over the rest of 2022 and the years to come. I am a buyer of BG shares on any price weakness, leaving room to add on further price corrections because of the overall stock market decline.

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